This note highlights the crucial elements in an exchange ratehased inflatian stabilization. In theory, such a policy is more efficient compared to the alternatiue money-based one if certain conditions are satisfied. The first condition, indeed a prerequistiue, is the gaining the redibility. Our simulation experiments show that a credible exchange rate fixing would be able to break the intertial Turkish inflatian process. However, we doubt that this aspect has seriously been taken by the practitioners. The movements in various interest rates are an indication of these lacking aspect. We also emphasize that exchange rate-based stabilization is a kind of shock therapy but not a permanent treatment.
Key words: na Article Language: EnglishTurkish
|
